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Daniel Ustian, ousted CEO of Navistar

Navistar International is just beginning to tally the full cost of its failed bet on an unproven heavy-truck engine technology, but some of the bills are already starting to come due in advance of the company's quarterly results on Sept. 6.

Late Thursday, the Lisle, Ill.-based manufacturer learned that the Environmental Protection Agency would sharply increase the fines it slaps on each engine it makes that does not meet current emissions standards. The new penalty is $3,744 per engine, nearly double the fine of $1,919 the EPA had set earlier this year, but less than the $8,000 to $20,000 per engine some competitors had been suggesting.

Navistar also disclosed that it didn't have enough takers for its recent voluntary buyout program, so it will have to resort to layoffs to achieve its cost-cutting targets. In an SEC filing, Navistar said it estimates a restructuring charge of $40 million to $60 million in the fourth quarter but did not say how many jobs would be cut.

The full impact of the EPA penalties depends on how many non-compliant engines Navistar sells between now and next year, when it plans to start selling redesigned engines that do meet EPA requirements. The company has been able to keep selling its engines, even though they are dirtier than required, because of EPA credits earned in previous years. Navistar has said those credits could run out soon, after which it would be fined for each non-compliant engine. But because of uncertainty surrounding Navistar's future, the company has seen a 40 percent decline in future truck orders, meaning the credits might last longer than expected.

Andrew Casey, a Wells Fargo Securities analyst, said in a research note that the cash impact of the penalties “appears manageable,” setting a price target of $21 to $24 for the next 12 months to 18 months.

"We can now provide our dealers and customers with clarity and certainty as we transition to our clean engine technology and look forward to utilizing the [non-compliance penalties] as needed," said chief operating officer Troy Clarke.

A lot will become clearer on Sept. 6, when the company releases its results for the period ending July 31 and is expected to update its financial outlook for the remainder of the year. All eyes will be on interim chief executive Lewis Campbell, the former Textron chief who inherited a company in crisis when he was appointed Monday after the ouster of CEO Daniel Ustian.

Navistar got into trouble after Ustian’s decision to break with the rest of the industry to pursue a diesel emissions technology that ultimately failed to obtain EPA certification, a gamble akin to choosing Betamax over VHS. Navistar plans to buy truck engines from rival Cummins, at least in the short term, while it re-engineers its entire product lineup to accept the more conventional technology used by its competitors.

In the first half of fiscal 2012, Navistar's pretax loss was $516 million on revenues of $6.4 billion. Navistar shares, which have been down more than 50% in the last 12 months, rose almost 3 percent Friday on news that the EPA fines would be lower than expected.

But the primary concern, says Gimme Credit analyst Vicki Bryan, is the rate at which Navistar is burning cash. She anticipates the company will use at least $1 billion in cash over the next 12 months as it regroups. The company recently borrowed $1 billion to help it through the transition but that might be enough to achieve stability. "Plummeting sales versus rising operating and R&D costs, plus unusual fines and charges including likely substantial impairment charges to write off inventory value, indicates Navistar may report losses much worse than currently expected over the next year," she wrote in a note to investors.